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Wall Street Gets Relief From Tough Aspect of Fed's Stress Tests

(Bloomberg) -- One of Wall Street’s biggest annual fears is poised to disappear after the Federal Reserve said Wednesday it plans to ease what was one of the most burdensome aspects of its stress tests.

For the largest U.S. lenders, the so-called qualitative portion of the exams will no longer be a factor in whether they pass or fail, the Fed said in a Wednesday statement. But some foreign banks that have had trouble clearing the hurdle -- such as Deutsche Bank AG -- will still face the measure.

The qualitative part of the tests measures each firm’s ability to manage capital in a crisis. Large U.S. banks will still be required to pass the quantitative elements of the exams, which evaluate their ability to maintain minimum levels of capital under hypothetical stress scenarios. The latest scenarios, released by the Fed last month, contemplated the deepest recession yet.

The regulator had been moving since the Obama administration to downplay the qualitative portion of the stress tests, and it had already released mid-sized institutions. Such efforts have accelerated since President Donald Trump took office.

The Fed said foreign banks, including Barclays Plc, Credit Suisse Group AG, Toronto-Dominion Bank and UBS Group AG, will have to pass the tests four times before they’re no longer subject to the qualitative portion. Fed Governor Lael Brainard dissented from the regulator’s decision on reducing the significance of the qualitative aspect.